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What is a Receivership?

Updated: Apr 4, 2022

When a skilled nursing facility (SNF) is having financial difficulties it may choose to file for bankruptcy. The bankruptcy process results in a liquidation of the SNF’s assets or the creation of a reorganization plan to pay off the facility’s debts. Bankruptcy is a voluntary process where a trustee is appointed by a court to manage the debtor’s estate.

Alternatively, a SNF that is having financial or compliance problems may be compelled to enter into a receivership, which is an involuntary process initiated by creditors or the state where a receiver is appointed to restructure the creditor’s debts and help bring the SNF into compliance.

From the perspective of SNF owners and patients, receiverships may be more advantageous than bankruptcy because it enables a facility to keep operating instead of shutting down and liquidating its assets to creditors. In addition, receivership costs less than bankruptcy, results in less publicity, and is faster than bankruptcy.

If a creditor seeks a receivership the court will appoint a receiver for the facility. A receiver is a professional who is tasked with managing a company's operations, finances, and property in cases where a company defaults on its liabilities. Receivers must be neutral parties insofar as they work on behalf of both the facility and its creditors for the purpose of reaching a mutually-beneficial agreement which allows for debt repayment while keeping the business operating.

The receiver will also cooperate with state health authorities to correct any survey deficiencies and transfer the SNF to a new operator. However, neither receivership nor bankruptcy can prevent health regulators from imposing penalties or other enforcement actions on grounds of noncompliance with healthcare laws.

In addition to creditor-initiated receiverships, many states have laws which allow state health authorities to initiate the receivership process and appoint a receiver in cases where a SNF has repeated failed surveys and is in the process of losing or has lost its license to operate.

In California, for example, the state legislature has passed a law which provides for state-initiated receiverships of long-term care facilities in order to prevent “the transfer trauma” that can occur when a facility shuts down and patients are abruptly and involuntary transferred to a new facility.

Under California law, the state’s Department of Health Services may apply for a court order appointing a receiver to temporarily operate a long-term health care facility. The receiver assumes operation the facility “in order to either bring it into compliance with law and return it to the original licensee.”

It’s critical for SNF’s to keep abreast of healthcare rules and regulations in order to avoid financial penalties and the imposition of a receivership which transfers management and ownership of the SNF to a third party. Clearpol’s software is designed to help SNF’s develop internal policies and procedures to stay in compliance with the complicated and ever-changing regulatory landscape governing SNF’s.

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